The current account posted a surplus of EUR29m in March, which compared positively to a deficit of EUR68m in March last year, figures of the Bank of Latvia, published on Thursday showed. The merchandise trade deficit narrowed down by 59.0% y/y to EUR98m as exports rose tangibly by 16.7% y/y, exceeding import growth which came in at 1.7% y/y. In addition, the services trade surplus widened by 16.6% y/y to EUR197m, largely supported by the transportation sector. On the other hand, the secondary income surplus shrank in half, likely due to lower remittance flows from abroad. Meanwhile, the financial account reported an outflow of EUR81m, underpinned by both direct, portfolio and other investment.
In 12-month rolling terms, the current account posted a deficit of EUR11m, in comparison with a surplus of EUR145m in the 12-month period ending in March 2018. The merchandise trade deficit widened by 3.1% y/y to EUR2.4bn, along with the secondary income surplus which narrowed down by 10.7% y/y to EUR309m. On the other hand, the services surplus expanded by 8.5% y/y to EUR2.5bn. The financial account reported an outflow of EUR467m, largely underpinned by other investment, which posted an outflow of EUR2.3bn. Meanwhile, FDI posted an inflow of EUR764m, higher by 36.9% y/y.
Looking forward, we continue to expect a deterioration of Latvia’s current account balance in 2019, given projections for moderating demand among its trading partners. To remind, the IMF projects a CA deficit at 1.4% of GDP this year, while the European Commission is considerably more optimistic, forecasting the deficit at 0.2% of GDP.